Norwegian fund moves closer to divestment as Germany culls coal Opinion Article

Dec 04, 2014 - 12:45pm


This article first appeared in Climate Spectator on 4 December 2014.

John Connor   
CEO, The Climate Institute

Overnight Norway and German added to already mounting global heat on fossil fuel assets.

Germany's Cabinet agreed on a package to ensure the country meets its target to cut carbon pollution by 40 per cent below 1990 levels by 2020. These include a push to close down coal-fired power stations, some of which rank among the highest polluters in Europe.

So far Germany has succeeded in reducing carbon pollution by 20 per cent below 1990 levels, and boosting renewable power to 24 per cent. But the current rate of carbon reduction is likely to fall short of its target, achieving only 33 per cent by 2020. This leaves another 87 million tonnes to be avoided. Germany's new package relies on energy efficiency to achieve about one-third of this, mainly through setting targets for companies and financing building retrofits, and another third is to be met through measures across transport, industry and the land sector.

But the final third addresses Germany's biggest emission problem: its high emissions from coal-fired power. Germany's aim to cut 22 million tonnes of emissions from electricity is estimated to require closure of eight coal stations. How this is to be done will be decided over coming years, and will be related to broader energy market reforms kicking off next year.

The Cabinet’s decision, along with that of Germany's biggest utility E.ON's decision last week to split off its fossil fuel assets, may be seen as the beginning of the end of traditional coal-fired generation in Germany.

As the German news made the rounds, Norway further kindled the fire.

An independent expert panel convened at the request of the Norwegian parliamentary majority has recommended that the Norwegian Government Pension Fund intensify scrutiny of its investments for climate risk and potentially start to exclude the “worst climate offenders” from its portfolio.

The panel recommended that the fund should be an active investor with regard to climate change. It said that the fund’s guidelines should be changed to exclude companies whose activities are harmful to the climate, on a case-by-case basis.

For those companies in which the fund is already invested, the panel recommends active ownership and engagement. Norway's finance ministry had asked the panel to evaluate whether divesting from fossil companies or exercising ownership and influence would be a more effective strategy. The panel noted that: "We do not think that it would be better for the climate – or the fund – if these shares were to be sold to other investors who, in all probability, will have a less ambitious climate-related ownership strategy than the fund."

News reports are already split between whether the decision was a win or loss for the fossil fuel divestment movement, but that argument overlooks the main point, which is that the heat is on fossil fuels, whichever way you look at it.

Norway's pension fund is one of world’s largest, a significant investor on the global scene, and responsible for providing for retirement for future generations. The Norwegian Government Pension Fund ranked 41st out of the world’s largest 1000 asset owners on last year’s Asset Owners Disclosure Project index, which measures funds disclosure and policies related to climate risk. The fund already ranked first among sovereign wealth funds. If it takes up the panel's recommendations it will further raise the bar for its peers.

Meanwhile, Germany's emission reduction efforts were already regarded as ambitious, and their decision to accelerate rather than slow down will not go unnoticed in Lima, where country representatives are building a long-term global framework for climate action.

These moves are in addition to that of the Bank of England which just days ago said that it will more actively monitor for systemic financial risks that can flow from climate or carbon action.

The recognition that some high-carbon assets will become stranded in a world that is moving to address climate change is long overdue and very much needed if we are to keep below the 2-degree global temperature rise that more than 180 countries have agreed to. Those trying to ignore the signs that companies and countries are starting to take climate risk more seriously do so at their own peril.

Australia is in that group. We keep adding more coal and kindling to the fire, with none of these oversights being put in place by the Future Fund and financial regulators.

John Connor

John Connor was CEO of The Climate Institute from 2007 to March 2017. Whilst qualified as a lawyer, John has spent over twenty years working in a variety of policy and advocacy roles with organisations including World Vision, Make Poverty History, the Australian Conservation Foundation and the NSW Nature Conservation Council. Since joining The Climate Institute in 2007 John has been a leading analyst and commentator on the rollercoaster that has been Australia’s domestic and international carbon policy and overseen the Institute’s additional focus on institutional investors and climate risk. John has also worked on numerous government and business advisory panels.

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